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How is medical debt handled in bankruptcy?

On Behalf of | Sep 21, 2023 | Medical Debt

People may choose to file bankruptcy for many different reasons, ranging from job loss to an unsuccessful attempt to start a small business. However, when looking at the most commonly-cited reasons for personal bankruptcy filings, one issue stands out more than most others.

Medical debts are a leading cause of financial insolvency and bankruptcy in the United States. Many people struggle with their medical debts for years before they seek the relief of a bankruptcy filing because they do not understand how bankruptcy may benefit them.

What happens to medical debt during bankruptcy proceedings?

The courts can discharge what someone owes

The most valuable result of a successful bankruptcy filing will be the discharge of someone’s unsecured debts. Personal bankruptcy will culminate in a discharge that will allow someone to move on with their life without repaying their massive medical debts. What they owe for emergency surgery or specialized cancer treatments not fully covered by their health insurance will no longer hold them back financially and drag down their credit score.

The courts will prevent aggressive collection efforts

Many people who have received medical care that they could not pay for are eager to fulfill their obligations to their healthcare providers and would happily make payments every month for years to fully pay for their treatment. Unfortunately, healthcare providers are often not patient with those who owe large balances.

Hospitals and other medical creditors will often decide to take individuals to court or hire a collection agency that will do so. They can seek a lien against somebody’s primary residence or even attempt to garnish someone’s wages. Once a medical creditor or the collection agency they hired indicates a desire to involve the courts, the person who owes money will be at risk of major and lifelong consequences.

The automatic stay that the courts grant when someone files for bankruptcy will result in the temporary dismissal of pending lawsuits and other collection efforts. People can use an automatic stay to avoid a judgment that could follow them even after bankruptcy.

When medical creditors will not work with someone who owes a sizable debt, an individual’s best option may be to file for bankruptcy so that their health concerns don’t leave them destitute for years. Understanding what happens to medical debts during a bankruptcy can help people decide if filing for bankruptcy is the right option in their situation.